Living Better While Spending Less – Secrets of America's Upper Class

Regarding Investments

I received an email recently from Melissa, one of our readers, regarding investment advice. While I’ve mentioned that I don’t give advice on investments, I do want to open the floor to everyone to provide some guidance related to this issue.

By ‘guidance’, I mean advice regarding an approach, a strategy, a philosophy, even comments about specific asset classes such as real estate, stocks, bonds, annuities, precious metals, and funds are welcome, but please keep it general.

Feel free to discuss levels of risks associated with these, how steady or unpredictable returns are (or have been for you, in your personal experience.) Talk about how diversified your portfolio is and why. Discuss tax implications of profits and losses if you like. Wax eloquent about history and government policy and how that affects return on investment. However, please keep in mind the following, no-exceptions rule:

Any comments that mention a specific company, stock, index or mutual fund, brokerage fund, or investment advisor will be deleted.

If there are questions, please feel free to touch base with me by email prior to responding.

My intention with this post is not to promote investment products or companies. It is to provide a foundation and perspective with which to approach investing in a healthy and balanced way.

I think it would be beneficial to hear everyone’s thoughts about a number of things in a couple of categories…

Asking Yourself: First, what questions do you ask yourself before you considering investing? My list might start with the following…How much risk can you tolerate? What are your investment goals? How do they fit in to your life goals? How does investing fit in with your present situation: employment? current net worth? financial independence? children? retirement? charity?

Asking Others: Second, how to go about selecting an investment advisor. Who do you get referrals from? How much should you have ready to invest? How much research on investment products do you do yourself? How do you determine if the advisor is making money off his own investment recommendations–or only off clients’ commissions?

As always, I really appreciate everyone’s contributions. It should be a lively and informative discussion.

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40 thoughts on “Regarding Investments”

Canadian OMG here. I have an education in Finance and work in the field. I am a strong believe that regardless of your situation less is more. Be broadly diversified, this will help you in good markets and bad. Don’t jump into complex products or sales pitches just because they are more complicated. The stock market has averaged a 7% return for over 30 years, don’t think you’re the next investing king. This also means that you’re going to have down years, do not hop advisors because you made a little less, the fees will kill you.

Finally when it comes to picking an Investment Advisor, you need someone who is going to look after your best interests. You’re going to have a long relationship with this person hopefully and you need to be comfortable with them. If I’m being honest half of the job is holding your hand through a market down turn and encouraging you not to sell. You need to trust this person. Personal referrals is key, and get a second opinion it cannot hurt.

Other than that, sock the money into it regularly and don’t look at it.

Hi Jon, are you familiar with complexity theory and Cat’s Cradle by Kurt Vonnegut?

Regarding “…you need someone who is going to look after your best interests.” I know only few houses who will look after your best interest – the partners of these German, but mainly Swiss houses are OM themselves and have unlimited liability – they invest their own.

You’re referring to old school partnership firms of which there are still some! Many have become public companies in order to raise money from the markets. There are one or two Swiss houses which I still believe are good private partnerships, and are excellent stewards of capital!

Read, read, read. Books, not magazines or websites. In keeping with Byron’s Rules, I won’t name specific books but there are about a dozen classic books on finance and investing. Take the time to read them. That will give you a solid foundation for an education in investing. Here’s the first thing I learned: volatility is not the same as risk.

Here are a few, in no particular order, that I have found helpful. Stocks for the Long Run by Jeremy Siegel. Asset Allocation by Roger Gibson. The Intelligent Investor by Benjamin Graham. The Only Investment Guide You’ll Ever Need by Andrew Tobias. All About Asset Allocation by Richard Ferri. The Simple Path to Wealth by J.L. Collins. The Four Pillars of Investing by William Bernstein. The Little Book of Common Sense Investing by John Bogle. The Bogleheads Guide to Retirement Planning by Larimore, Lindauer, Ferri and Dogu. A Random Walk Down Wall Street by Burton Malkiel. The Elements of Investing by Charles Ellis. The Bogleheads Guide to Investing by Lindauer, Larimore and LeBouef.
I have read all of these and they are all very good. I have no connection, personal or financial, to any of these authors or books. For less technical, more lifestyle oriented books, The Millionaire Next Door by Stanley and Danko and The Old Money Book by some guy named Byron Tully are very good.

To begin with live the good life which some people may view as being frugal which will allow you to build capital to invest. Mr. Tully really does a good job explaining how to do it in his book.

* Cook for yourself and bring the left overs for lunch the next day. Grind your own coffee beans and brew your own coffee. A simple pour over system will cost about 20.00.
* Buy a good car and keep it in pristine condition. From what I read the Subaru outback is an old money car and it won’t set you back a lot of money.
* No internet at your house, just read, watch regular TV. Once a week take a trip to the library with your laptop to use the wifi to pay bills online and monitor your investments. Make sure the kids check out a new book to read for the week.
* I learned this one the hard way. Private are no longer better than public schools. Public schools have higher standards now. Be involved in your kids school work.
* Create a budget. Now the goal is for you to put 16% of your net pay into investments. Also make sure you are maxing out your 401k or 403b at work.
* Make sure you create buckets for vacations and holiday spending. Don’t feel you have to take a travel based vacation every year.
* I will keep this as generic as possible. For investment consider Index mutual funds.
* Anyone who says they made millions in a short period of time in the stock market is lying. The short term capital gains tax can be quite high as well as the long term capital gains. Keep money invested for the long haul.
* Don’t pay in cash. For example Amazon prime visa will get you 5 to 10% cash back at Whole foods. Just make sure you pay the balance off every week.
* Manage whatever debt you may have accumulated. Transfer credit card debt into a no interest credit card offer.

Good advice, but you’re missing the marks on two items:
* 16% savings rate will allow for retirement after about fourty years. The rate is too low and the duration too long.
* Pay cash, this will be a lot cheaper even after taking into account “cashback schemes”.
* Where required, prepaid credit cards are great.

A great list, Bob. Much appreciated. Especially someone saying they’ve made millions in the market very quickly. You usually see their names in the paper soon thereafter, along with the words ‘indictment’ or ‘insider trading’. Thanks. – BGT

I cannot stress enough how incredibly dangerous it is to do any banking or review of finances of wi-fi. Fork out the extra money to have NON wi-fi Internet access at your house. Being hacked is a very real thing and wi-fi makes it so much easier for thieves to gain access to your data.

We do have some individual stocks as well ss an array of mutual funds, realestate, some art and some cash. As Byron has outlined in his book; we live below our means. We dollar cost average through a wide range of investment vehicles, and have doing so for a long time. Smaller acadrmic year house and the summer honr have no mortgage. We drive old cars. Private schools and college for our children are all paid in cash. We do own a small business and have benefitted from family money. Old friends, old habits, and a value on experience over possessions. Time is more important than working to buy stuff. Discipline and values inform our investment strategy. We reject the ephemeral and are suspicious of the new, whether it’s an investment or clothing.

For the previous 2 generations of my family, property (UK) has far outstripped any compounding or stock market investment.
Personally I invest mainly in an investment trust with great performance and low fees. Choose this because I have a 20 – 30 year time frame on this investment and I believe in the investment philosophy of the fund manager. I have a small investment in an oil & gas exploration company, but nothing I could not afford to lose. I have always felt secure enough in who I am that I don’t need waste money impressing people (ok, after 25yo when the BMW/ Rolex/ Cartier etc phase had passed)
My parents have a large property with pool etc and all the trimmings. It’s nice to visit with my children, but I am planning on moving to a small fishing village in Scotland and living a simpler life.

I see two fundamental issues being addressed here. First, the issue of lifestyle, second that of investment. Some folks treat them independently, others treat them as interdependent. I come down on the side of saying that you can’t have one without the other, sort of like the song about love and marriage. The best source I know of regarding lifestyle is “The Millionaire Next Door” by Thomas Stanley and William Danko. For pure investment philosophy I recommend “A Random Walk Down Wall Street” by Burton Malkiel. They are both classics.

I won’t argue with those who say the market can be beat using this or that stock picking method, certainly not in this forum; I will just say that a broad based index fund(s) is best for those of us unable or too lazy to learn those techniques (that I don’t believe).

It seems too obvious to say, but living rich does not make one rich. It amazes me to see people with new cars, boats, more house than they can afford, and just otherwise living large who complain they have no money. You can’t have money if you spend it (like cake?).

Excellent comment, Charles. Thank you. You are on target: if you can’t control your lifestyle, how will you have money to invest? And when you do invest, how will you be able to live well off your dividends if you spend too much? The are inseparable. Much appreciated. – BGT

Since books are permitted, I would recommend: Private Wealth in Renaissance Florence (Princeton Legacy Library) by Richard A. Goldthwaite; Banks, Palaces and Entrepreneurs in Renaissance Florence, same author; Money and Banking in Medieval and Renaissance Venice, Vol. 1: Coins and Moneys of Account by Frederic Chapin Lane and Reinhold C. Mueller; The Venetian Money Market: Banks, Panics, and the Public Debt, 1200-1500 (Money and Banking in Medieval and Renaissance Venice, Vol. 2) by Reinhold C. Mueller; Fiat Money Inflation in France by Andrew Dickson White; The Money Illusion by Irving Fisher; When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany by Adam Fergusson; Only Yesterday: An Informal History of the 1920s by Frederick Lewis Allen and many other; plus studying renaissance ledgers and history of German, Swiss and Italian medieval and renaissances families. And The Old Money Book: How To Live Better While Spending Less: Secrets of America’s Upper Class, obviously. There are many investment avenues explained; however, one needs to reed between lines and think.

I have two favorite types of investments and a few that are secondary.

I find that wholly-owned real estate (no mortgages or liens) that is occupied by tenants and privately owned companies (whether by me or otherwise).

These satisfy a few things I look for in investments: Do they pay me every month or at least every quarter? Do I have some level of control or say in what happens with my money? (this often isn’t the case with public stocks) Are these tangible assets? (Private companies and companies, in general, are by nature intangible however they do have physical inventories, intellectual property, employees, and other physical assets)

Secondary to this is cash. Some might find it silly not to invest most of one’s cash because of missed gains. But what I say to them is: first, keeping cash is an insurance policy and the premium paid is the gains it could have made in the “market” and secondly having a large portion of one’s assets liquid allows one to make larger investments all at once as the opportunity arises.

And finally, I do also invest in public equities and mutual funds as a hedge against my other investments and I keep a portion of my portfolio in bullion and art as well.

I’d like to add another book title: Early Bird–The Power of Investing Young, by Maya Peterson. Maya was a high school student when she wrote this with some help from her parents. I’m enthusiastically recommending this to ALL young–and not so young–folks. It’s on my Kindle, along with The Old Money Book!

Another book – Fail Safe Investing (AKA Permanent Portfolio) by Harry Browne. Investing in this strategy (adjusted a bit over time) put me in retired status very early. The key is to do “something” as far as investments are concerned when you’re starting out in life.

The one thing people try to do with investments is complicate them in my opinion. I have invested in variations of this portfolio https://obviousinvestor.com/my-investments/ for almost 30 years. Steady 9%-10% per year with low drawdowns of around the same. Simple, easy and nothing do do except rebalance every year.

Yes Jon, I am referring to very old private partnerships. There is a big difference between private banking and Private banker(s) Association. That’s an utterly distinctive class. I think I forgot to mention The Medieval Super-Companies: A Study of the Peruzzi Company of Florence by Edwin S. Hunt, The Raven of Zurich: The Memoirs of Felix Somary by Felix Somary, Banking in Russia, Austro-Hungary The Netherlands and Japan (National Monetary Commission – 61st Congress 2d Session Document No. 586), Luigi Einaudi: Selected Economic Essays: Volume II (Luigi is absolutely unknown to the English speaking world!) and Modern Money Mechanics – Chicago FED. Since you have education in finance I think you were told that Peruzzi and Bardi families went belly up because they lent a lot of money…….. I assure you that it’s a total nonsense. These families and many other old families are doing pretty well. If you read 1427 Catasto (just type in 1427 catasto onlie) and check the families with largest numbers, I assure you that they are still here. Different names, same blood.
There is big difference between finance, currency and money. The market, stocks, bonds, ETFs ….. were invented to draw peoples’ attention to the black hole (just look at German 30Y bonds, the government is ready to inject 50B euros to the economy. Will it help? Of course NOT!). Just imagine if people had money. Are you serious?! I think one can learn a lot from Giordano Bruno and his Expulsion of the Triumphant Beast.
Good luck!